The long-expected deal is a rare piece of good news for Hong Kong's moribund economy. The recent SARS outbreak devastated tourism, hitting many service industries hard. The jobless rate, already at a record high 7.8 percent, is expected to shoot up to 8.3 percent when it is announced Tuesday.

This former British colony reverted to Chinese rule in 1997. But Beijing and Hong Kong are treated as separate customs territories, preventing local businesses from taking full advantage of their close trade and commercial ties with the mainland.

Similar to free trade agreements between countries, the Mainland/Hong Kong Closer Economic Partnership Arrangement will cover trade in both goods and services and will facilitate customs cooperation and e-commerce, officials here say.

They also stress that the deal will comply with World Trade Organization rules, treating all businesses fairly.

Talks on an agreement began in January 2002. So far, there have been discussions on reducing and eliminating tariff and non-tariff measures.

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Hong Kong has been struggling since the Asian financial crisis hit in 1997.